Canada has one of the largest economies in the world—one that’s funded both by domestic and foreign investors. Over recent years, the country has seen an uptick in the flow of foreign direct investment.
Let’s look at what foreign direct investment is, its level in Canada currently, and how its value might impact Canadian citizens.
What is Foreign Direct Investment (FDI)?
Before we dive into the stats behind foreign investment in Canada, we first have to understand what it is.
Foreign direct investment (or FDI) amounts to substantial investment in a company or market made by investors located overseas. For example, a US company investing in a Canadian company would be a case of FDI. However, it can be much more than just financial investment; it might also include the provision of management, technology, or equipment.1 FDI can establish control or substantial influence over a foreign business and its decision-making. In some cases, it comes in the form of an acquisition of another company.2
There are also different kinds of FDI. The primary forms of FDI include:
- Horizontal - when a company invests in the same type of business operation in a foreign country as it has in its home country, with the goal of growth. A fast-food chain opening restaurants in a foreign country would be a case of horizontal FDI.
- Vertical - when a company invests in a complementary business in a foreign country; for example, a smartphone company investing in a tech factory in China.
- Conglomerate - when a company invests in a foreign business unrelated to its core interest, with the goal of forming a joint venture. If Amazon invested in an electric car company in another country, for example, this would be a case of conglomerate FDI.
Now that we know a little bit more about FDI, let’s examine what foreign investments look like in Canada.
FDI By the Numbers in Canada
FDI is a major resource to Canadians. According to Statistics Canada, total FDI in the country reached $67.2 billion in 2019, which was the best year for foreign investment since 2013.3 Of course, the pandemic changed things in 2020, with FDI falling to $24 billion that year.4
The numbers paint an interesting picture about how much FDI has been sent into Canada.
- Canada received $67.2 billion in FDI in 2019.
- 353 FDI projects were announced in 2019.
- The US is currently the highest foreign investor in Canada, followed by the Netherlands and then the UK.5
- When broken down by province, Ontario led with $30.7 billion in foreign investment in 2019, followed by British Columbia, with $20.4 billion. Quebec received $6.3 billion in FDI, and Alberta’s share amounted to $4.2 billion.6
- In 2019, the largest foreign investment type was reinvestment. Reinvestment refers to investments by global investors who have settled in Canada and continue to grow their businesses and future projects here.
The Impact of FDI on Canadians
FDI is a good indicator of a healthy economy because it shows that people from all over the world want to help grow the destination country’s GDP. In fact, FDI inflows have been a trigger for accelerating economic growth, and studies have shown that an increasing trend for FDI also increases the GDP of that country.7 More FDI-backed projects mean more jobs for Canadian citizens all over the country.
We may have seen a dip in FDI in 2020, but the figures show how important such investment is for Canada’s economy. Despite the challenges, Canada is still showing promising growth and is trending upward economically.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.